The “Uber” Problem for the Taxi Medallion Industry

Risk Insight Video & Blog Series: November 

Across the streets of major cities around the world, an ongoing battle is disturbing an industry that has remained almost unchanged and unchallenged for decades.

In recent years, the taxi medallion industry’s long-time market stronghold has been usurped by new ride-sharing entrants such as Uber Technologies Inc. and Lyft Inc. These technology companies have quietly infiltrated taxi markets once thought to be impenetrable, impacting the day-to-day economics of taxicab operations as well as taxi medallion values.

Applying the S&P Capital IQ® Industry Risk Scoring Methodology[1], we analyzed the impact that Uber and similar competitors have had on the risk profile of firms operating in the U.S. taxi medallion industry.

In this blog, we will briefly cover 3 topics:

  • First, our approach to the analysis of Industry Risk.
  • Secondly, an introduction to our team’s forthcoming article in the Risk Management Association (RMA) Journal “How Uber and Other Ride-Sharing Companies Are Roiling the Taxi Medallion Industry.”
  • And lastly, an example of the sweeping credit fallouts from these disruptive technologies.

Topic 1: Industry Risk Assessment

At S&P Capital IQ, the analysis of Industry Risk is a key component of the overall credit assessment of an obligor. To support this analysis, we developed Industry Risk Scores, which represent the forward-looking, median credit quality of a given industry.

Some of the factors included are:

  • Industry Profitability
  • Barriers to Entry and Exit
  • And, Regulatory and Fiscal Regimes

Topic 2: Taxi Medallion Industry Risk

In the December 2015 issue of the RMA Journal, we examine how the taxi medallion industry is under pressure from Uber and other ride-sharing companies.

Key credit risk contributors include:

  • A breakdown in regulatory authority.
  • A shift in economic fundamentals driven by the supply of drivers and vehicles in the market.

Today, it is possible to see that the Taxi Medallion Industry was not prepared to tackle the new competition. For example, the sharp fall in New York City taxi medallion prices underscores the weakening credit quality of the overall industry. Latest numbers show almost a 40% decline in the price of a medallion in New York City from only two years ago.

Topic 3: Spillover Effects of Industry Risk

The increased Industry Risk for taxi medallions has an impact on other industries too, for instance: Banks.

When medallion prices were sky-high, buyers often relied on short-term bank loans to finance purchases. As ride-sharing companies erode the profitability of the industry, banks are now hesitant to refinance the same loans, creating further downward pressure on the price of medallions.

So, it’s not just the taxi medallion industry that is adversely impacted by ride-sharing companies. The spillover effect will be felt by banks that operate in the medallion-financing segment.

Please join us on December 10th at 11am ET, for a webinar where my colleagues and I will be exploring this topic in much more detail. We will also answer your questions about Uber’s dramatic impacts on the Taxi Medallion Industry. Register Today.

Watch Eduardo Alves’s video to further explore Uber’s impact on the taxi medallion industry and credit risk.

The “Uber” Problem for the Taxi Medallion Industry

Contact us if you are interested in learning more about this important topic.

Interested in our Credit Assessment Scorecards? Click here to get more info.

Thank you for checking out the November installment of the Risk Insight Monthly Video & Blog Series! Check back here each month to read the latest Risk Insight blog and video.

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[1] The S&P Capital IQ Industry Risk Scoring methodology is a granular analytic developed by S&P Capital IQ based on one of the three anchor assessments (together with country and competitive position) outlined within the criteria of the Standard & Poor’s Ratings Services Corporate Methodology published on November 19, 2013.

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